Be fussy, thorough, alert and prompt

How to make sure your customers pay on time and how to avoid bad debts.

By Colin Porter

9 July 2012 — 3:00am

DON'T take on any job. While everyone is desperate to bring in work, monitor your potential customers. There's a willingness from business to accept just about anything, and credit and the payment terms are often overlooked. But asking for specific details can save you money in the future.

What to watch out for. Make sure you have a good written system set up for accepting work, especially if you have sales staff. Often businesses don't even know the correct trading entity of their customers, so it's key to write down details such as their ABN or ACN numbers.

Anyone can then go onto the website of corporate regulator Australian Securities and Investments Commission and produce a company extract. A quick $10 check can save you in the long term. You can also use credit check services from commercial providers to find out if there is any bad history such as a third-party default to another business.

Use customers' legal trading names on invoices. If you invoice the customer using their brand names rather than their legal entity, it means that if they don't pay and you proceed with court action you've actually got to reissue invoices and all the documentation with the correct name. Courts only recognise the current legal trading name.

Strictly enforce your payment terms. Make sure your customer knows exactly what your trading terms are and put them in writing when quoting the job or presenting the final details to the client. If you have 30-day terms, call the client if they haven't paid it within three or four days after the 30 days.

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Don't leave it too late. Put the call in, discuss why the payment hasn't been made, and then let the client know what steps you're going to take if there's no payment by this date, be it legal action or putting it into the hands of a debt collector. If you say you're going to do something, do it. The longer you leave it, the harder it is for you to get paid.

Cash is king. Getting your money sooner is going to allow you more funding, so consider offering discounts for prompt or early payment.

Before the end of every month, look at your receivables and write a trial balance, showing you the amount of money that is 30, 60 and 90 days out. You really don't want more than 5 per cent due over 90 days; that's bad business practice.